Here we are, sitting a few months into the calendar year and investment opportunities are difficult to come by. However, we are all living and breathing, right? We are all drinking water, eating food and have items in our life to reduce risk of loss, correct? Have you considered that if all else fails and dividend stock opportunities are tough to come by, to invest into an industry that will be around as long as we are simply living? That’s the focus of my article today. I really want to get down to basics of what one could invest in if you are afraid of the next pop, the fizzle-out of the latest start-up tech company or the fall of a once-was retail giant.
When living in the U.S., there are three areas of life that I can conclude you need to have: Water, Food and (sadly) Insurance are the three areas that are in everyone’s life in the United States. Whether you are young, old, male or female, you will need water, food and some form of insurance (think, auto, health, house, life). Similarly, whether you live in Ohio, Florida, California or Nevada, these three facets of life requirements are in everyone of us.
I want to list out those three areas of life and provide opportunities for dividend stock investments that align with those necessities. I will be considering our Dividend Diplomat Stock Screener, but this will be more basic with minor metrics being used. Who is ready to see what investments can be made into the areas that we use every day in our life?! Let’s see who and what I am talking about.
Your body is composed of up to 60% water, give or take 10%. This is no joke, see the respectable chart below. Further, they recommend 8 glasses of 8 ounces of water per day, or 64 ounces. In addition, to wash your clothes and body, water is (typically, cough) required. I am Italian and love to make pasta – guess what that currently needs? Water. Enjoy beer? Water is the number one ingredient right there.
If you are looking for an investment, what about a water company? My wife currently owns Aqua America (WTR). Aqua America is a major player in the eastern part of our country and has a long history of paying and increasing dividends. Further, the company’s market capitalization is close to $7 billion, and it handles water service for over 3 million people. Oh, and it’s been around for over 130 years. WTR has a price-to-earnings of approximately 25, a dividend yield of 2.41% and a payout ratio of 59%.
They aren’t the largest service provider of water, however. An even larger water company is American Water Works Company (AWK), which has been around for over 130 years and serves over 15 million people! How do AWK’s dividend metrics stack up? The company yields 1.75%, carries a payout ratio of 51% and a price-to-earnings of 29. It is priced higher in comparison to WTR and carries less yield. I like WTR over AWK in this scenario.
There is absolutely no question. We need to eat to fricken’ survive. I eat practically 5-6 times per day, smaller meals, but eat fairly often. I also don’t find myself as being a rare case. In fact, I know many individuals that eat as often as me, and the food has to come from somewhere. Well, why the heck wouldn’t you invest in a company like Archer-Daniels-Midland (ADM)? ADM makes/produces seeds, such as sunflower, flax-seed and canola oil, but also corn products, used in many items we eat everyday.
Don’t like ADM? Well, there is also Bunge Limited (BG), and the company does mostly the same things and is a direct competitor to ADM. ADM has been on my watch list for some time, and being that it produces necessities for living, it’s never a bad bet. Oh, and it is an Aristocrat too.
ADM, however, carries a current price-to-earnings of 12.40, with a yield and payout ratio of 3.25% and 40%, respectively. What about BG? BG’s price to earnings is almost 19x, with a dividend yield and payout ratio of 3.83% and 71%, respectively. A more difficult debate, but ADM appears more attractive given its payout ratio and lower valuation from a price-to-earnings perspective.
If you are living in America, there are 3 insurance pieces almost required at this point, but you could arguably get around them. Those 3 pieces are health, car and home/rental insurance. If you are breathing, you or someone you love is paying for your health insurance. Unless you are living below a level of income, you are even penalized if you don’t have it! Now, ain’t that America?! The same is going to be for transportation, unless you are smart, don’t have to drive a car and can walk/bike/take public transportation! Therefore, line up that auto insurance while you are at it! Old enough to live on your own and required to have renter’s insurance or own your house, just in time to spend a boatload on house insurance? Sign it up!
If you are thinking health insurance, take a look at United Health Group (UNH). It is one of the biggest companies in the world and serves over 100 million people. Further, it currently trades at $248.78, with a price-to-earnings ratio of 17 and a dividend yield and payout ratio of 1.47% and 25%, respectively. The company has ample room to continue to grow its dividend, with its most recent increase of 20%! Talk about dividend growth.
How about driving a car? Let’s take a brief look at auto insurance carriers, such as Allstate Corp. (ALL). Allstate currently yields over 2.1% and has a price-to-earnings of 10.5, which is fairly minimal. Its payout ratio represents 22%, letting investors know the company can increase its dividend, no problem. In fact, the recent increase was a solid 9%, and before that, a staggering 24%.
Whether you want health or auto insurance, there are plenty of others where that came from. You have Aflac (AFL), MetLife (MET), Cincinnati Financial (CINF) and plenty of others that all pay out dividends, bring in solid cash flow and service millions of customers.
Life-required dividend stocks conclusion
The stock market has jumped over 13% year to date, pushing earning multiples higher. Investment opportunities are slimmer this year, but maybe I sound like a broken record. You could save your cash in a 2.20% ally savings account, one of our Financial Freedom products, or you could invest in a dividend growth stock in a required area of life. What would you choose?
There are more people being born each day. That is another individual that will more than likely require health or auto insurance during that lifetime. Further, they are going to have to drink liquids and eat food to stay alive (unless in 2025 there are means to live without any of the two!?). Is it me, or is it just wild that there are companies that will have customers for the end of time? This is very interesting to me.
I’ll give you my thought on the above analysis and discussion. They have to be undervalued and yield higher than a savings account. Therefore, ADM looks the best out of the bunch, and I may consider adding to my position. However, I am curious about what you think. Please share your perspective, other areas of the analysis not considered and your conclusion to invest in areas that are required to live! Talk soon, good luck and happy investing!
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.